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Question
A U.S. firm has a 1 million payment due to a Dutch firm in 90 days. The current spot rate is $1.00 per euro, and the 90-day forward rate is $1.11. Ben forecasts that the spot rate in 90 days will be $0.99. Jerry forecasts that the spot rate will be $1.12 in 90 days. The actual spot rate in 90 days turns out to be $1.10. If the U.S. firm follows Jerrys forecast, it would:
a. buy euro in the forward market at$1.11.
b. wait and buy euro 90 days later at $1.10.
c. buy euro now at $1.12 and let it sit in the companys safe.
d. wait and buy euro in the forward market 90 days later at $1.11.
Answer
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